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DiXi Group experts: Gazprom’s special status revoked: what consequences the court ruling on OPAL will have

12 September 2019
DiXi Group experts: Gazprom’s special status revoked: what consequences the court ruling on OPAL will have

The Court of Justice of the European Union dealt a heavy blow to Gazprom’s plans, placing the OPAL pipeline back under direct jurisdiction of the EU legislation. This ruling significantly restrains Russia’s ability to increase gas deliveries via Nord Stream, bypassing Ukraine.

Still, it wasn’t the only attempt lobbied by Germany to take its gas dealings with Russia out of the scope of EU directives.

And that notwithstanding the fact that the EU legislation – in particular, directives – is binding upon all EU member states, and therefore, national legislations must preserve the content and spirit of EU directives to make sure that rules of the game are the same for everyone in the Union.

However, as far as the energy sector is concerned, it happens that some countries are "more equal" than others.

A gas pipeline with special status

By developing business with Russia in the gas sector, Germany at the same time develops the system of gas infrastructure for smoother deliveries of Russian gas. And sometimes, this infrastructure is being taken out of the direct applicability of the EU legislation and receives a special status for the management or use.

That, in particular, was what happened to the OPAL gas pipeline built as an extension of Nord Stream.

In February 2009, Germany’s regulatory authority Bundesnetzagentur (BNetzA) took the gas pipeline out of the scope of German antimonopoly law for 22 years, reasoning its decision, in particular, by claiming that OPAL connects German and Czech markets.

The same year, the European Commission decided to remove 50% of the pipeline’s capacity out of the scope of the Third Energy Package’s requirements concerning the third party access.

The volume of reserved capacity could have been higher only if Gazprom (or another supplier) were to implement the so-called gas release program by selling at least 3 bcm of natural gas at auctions to stimulate competition in the Czech Republic’s gas market.

This option has never been used, and most likely, Gazprom wasn’t even going to consider it.

More benefits for Gazprom?

In 2016, the Bundesnetzagentur notified the European Commission about its intention to change the terms of using the OPAL pipeline and broaden Gazprom’s access to the pipeline’s capacity.

The Commission agreed, and in the fall of 2016 it ruled to allow Gazprom to use up to 80% of the OPAL’s capacity, and that without taking into account the capacity of other gas pipelines.

When the Commission’s decision became known, Naftogaz of Ukraine NJSC retorted by saying that this decision is not conformant with the Energy

Community Treaty and pointed out Gazprom’s possible abuse of its dominant position in countries of Central and Eastern Europe.

In December 2016, Poland’s PGNiG S.A. filed a complaint with the EU Court of Justice demanding suspension of the European Commission’s decision on the grounds that it violated the principles of energy solidarity. And in March 2017, Naftogaz of Ukraine NJSC lodged a complaint with the General Court (EGC) demanding reversal of the European Commission’s decision as violating Article 274 of the Ukraine-EU Association Agreement.

Finally, the Court of Justice of the European Union admitted in its ruling of 10 September on the complaint by PGNiG S.A. that the European Commission violated the said principles of the EU’s functioning.

Theoretically, the European Commission could appeal this ruling, but the appeal must concern legal aspects only. An application for appeal may be filed within two months and ten days after the ruling was entered.

For the second day in a row, the Polish party has been actively commenting on the positive results of the CJEU ruling. Poland’s Energy Minister Krzysztof Tchórzewski welcomed this decision, saying that it guarantees energy security of not only Poland but also Lithuania, Latvia, Estonia and Ukraine.

For had Gazprom gained complete control over the OPAL pipeline, gas transit via Ukraine would have been completely shut down.

And according to PGNiG (Polish Oil and Gas Extraction Company) President Piotr Woźniak, the said Court of Justice ruling will cause reduction of gas volumes delivered via Nord Stream from 60 to 40 bcm per annum, and at the same time, the volume of Russian gas transited via Ukraine will increase by 12.5 bcm per year.

Nord Stream 2 takes a hit

If the logic of this court ruling could be applied to another gas pipeline in Germany, EUGAL which serves as an extension of Nord Stream 2, it could make this project of Gazprom much costlier as well.

And that would provide additional arguments for the preservation of gas transit via Ukraine, giving the Ukrainian party more advantage at the talks in Brussels that will start the next week.

However, Gazprom’s friends are not going to give up, either.

While the countries of Central and Eastern Europe are celebrating the victory in the OPAL case, the German party is preparing another decision that will also concern the Ukrainian transit.

It is about the draft law that must implement Directive (EU) 2019/692 amending the so-called Gas Directive. These are the amendments that extend the applicability of the EU gas market’s rules onto the pipelines originating from outside the EU and that concern, first of all, Nord Stream 2.

According to the amended legislation, these gas pipelines must fall within the scope of rules of the EU’s internal market, e.g. third party access, unbundling, nondiscriminatory tariffs and transparency. EU member states must implement this Directive by February 2020.

But in this case as well, the German party showed creativity in interpreting the EU legislation in the process of implementing it.

The draft law amending the Electricity and Gas Supply Act, submitted by Federal Minister for Economic Affairs and Energy Peter Altmaier, was approved by the Federal Government on 28 August. 

But even now, this draft law requires attention from not only the European Commission but also Ukraine. The clauses of biggest concern are paragraphs 28b and 28c, which may potentially pursue Gazprom’s interests by relieving it from the compliance with the provisions regulating unbundling.

In particular, the draft law stipulates conditions for gas pipelines, under which the regulatory authority concerned may lift the unbundling requirement for a certain period.

It also mentions the possibility of returning investments and the pipeline’s role in enhancing energy security. For example, FNB Gas already stressed, when commenting on this draft law, that Nord Stream and Nord Stream 2 "make a huge contribution" to energy security of Germany and the EU in general.

Theoretically, this version, which represents an attempt to circumvent the full implementation of Directive, may be blocked by the European Commission.

However, as the experience with OPAL proves, there could be different scenarios of how events may unfold.

The Russian monopolist and its allies are cleverly dodging the EU’s legislative requirements, receiving exclusive conditions for their business.

Therefore, while celebrating, we should remain alert as regards new German particularities of European legislation.

Written by: Ivan Lopatynskyi, Anastasia Synytsia, Olena Pavlenko

DiXi Group experts

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